Business Daily (Nairobi)
Carol Musyoka
22 June 2009
opinion
Kerubo Onyancha is stuck in the unremitting Uhuru Highway traffic, but she hardly notices the gridlock as she warmly reflects on her good fortunes.
Her sister Moraa in Houston, Texas has just found a job after graduating from university and has started to send money to their parents in Keroka.
This means that the burden of taking care of their parents' daily expenses will reduce.
As she listens to the news, she hears that the Central Bank Governor Prof. Njuguna Ndung'u said the Government is going to launch a diaspora bond aimed at tapping into the Kenyans in the diaspora to invest and help build Kenya's infrastructure.
This is not the first time the Government has made such a hope-filled, but execution empty statement.
Let's face it, Kenyans abroad have strong family ties at home and regularly remit money to help in family expenses, to invest in assets or to support social causes such as building churches and schools in their home area.
The Central Bank reports that the annual remittances from Kenyans in the diaspora is about $1 billion, a fact that is as nice as to know as the price of coffee beans in Brazil.
It's what we do with these facts that will ensure we use a significant source of foreign direct investment--as that is what these flows essentially are-- to develop our economy. Casting an enviable eye at the Indian Government's initiatives will be a good place to start.
In an essay by Professor Prem Lal Joshi, from the University of Bahrain, he states that there are over 20 million Non-Resident Indians (NRIs) living in different regions of the world.
More than 44 per cent are concentrated in Asia, the Middle East, and Australia and New Zealand, and 26 per cent are in North and South America.
Interest ratesThe Indian government has a defined strategy to tap into NRI resources which has been firmly institutionalised into the banking and private sector.
The Reserve Bank of India (RBI), which is the central bank of the country, began by defining their target market as NRI's and Persons of Indian Origin (PIO's).
An NRI is an Indian citizen who is working abroad with an intention of an uncertain duration of stay while a PIO is a citizen of any other country, but whose ancestors were Indian nationals at least four generations away which would cover most of the Kenyans of Indian descent some of whom are currently enjoying the financial incentives put in place in the Indian banking sector.
The Reserve Bank of India provides guidelines on the interest to be provided on NRI accounts ensuring that they are high-yielding and pegged to international interest rates which essentially attracts NRI deposits and, furthermore, it relaxed its foreign exchange control regulations to enable the NRI's to repatriate the funds out of India automatically.
The Indian government's protectionist policy that places stringent conditions on foreign entities wishing to invest or purchase property in India has also been relaxed for the target market.
Through the Portfolio Investment Scheme, the RBI provides guidelines for NRI's and Persons of Indian Origin that wish to acquire shares or debentures of Indian companies through the stock exchanges in India.
Incentives placed by the Indian government include allowing NRIs 100 per cent investment in 34 priority and infrastructure facilities while approval is provided automatically in investments in certain technical collaborations.
They are also allowed to buy Indian development bonds and acquire or transfer any property in India without waiting for government approval which is required for any foreign investors.
As a result, India with a healthy balance of payments, has seen its foreign exchange reserves exceed $1.1 trillion, largely contributed by remittances of NRIs which exceeded $23 billion during the 2005-2006 financial year.
The Indian government in executing its commitment has also created a Ministry of Overseas Indian Affairs to serve the NRIs.
This in effect, is the kind of strategy that we want our government to put in place to ensure they walk the walk and quit the incessant talk.
The $1 billion of remittances into Kenya are only what is formally recorded as having been sent through the normal banking channels and money transfer vehicles such as Western Union.
It does not include the funds sent via informally channels.
It is a fact that Kenyans abroad are keenly interested in investing in their country; the global financial crisis has caused the government to shelve its plans for issuing a sovereign bond due to reduced global cash liquidity and risk averseness from potential foreign investors; and the government needs to borrow Sh109 billion from the domestic market and has a list of mile-long infrastructure projects that need to be financed.
Financial inflowsThe Central Bank monthly economic report states that our country's balance of payments has moved to a deficit of $677 million in March 2009 from a surplus of $747 million in March 2008 partly due to a significant decline in capital and financial inflows.
It's time to view Kenyans in the diaspora as a natural resource that will provide much needed financial inflows. How then does the government get smart about wooing the supply source?
Those in the diaspora have repeatedly asked for dual citizenship, but other than flapping their untaxed lips, the political elite has not made any efforts at changing immigration laws that will enable these Kenyans to travel easily into and out of Kenya.
The same Kenyans have savings sitting in bank accounts of foreign financial institutions that could be earning three or four times the amount of interest paid if the government launched its diaspora bond.
Diaspora incentivesGiving incentives such as waiving withholding tax of 15 per cent on the interest earned for investing in such a bond would be an excellent start. Reducing or even eliminating stamp duty on the purchase of property for developing mass housing projects could be another incentive.
This would be a win-win situation as it would reduce the pressure on the government to provide low income housing, generate much needed employment for construction workers and most importantly guarantee a competitive return on investment.
So as Kerubo inches slowly in the maddening traffic, she thinks about whether she should call Moraa and tell her the exciting news about the diaspora bond. But her instincts tell her to wait and see as execution is simply the art of getting things done. Over to you Mr. Governor.
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